Lecture Topic Six

Portfolio Management

1 Topic Six Overview

This topic notes will provide an overview of Portfolio Management to provide you with and
understanding of how the process can assist an organization to establish processes to manage
multiple projects, using timelines and balancing/managing resources. Organizations that use
portfolio management are able to track resources across projects and to manage “surprise”
projects and emergencies more effectively. The material will present several perspectives
about Portfolio Management and how to apply this concept in an organization.

At the end of this Topic notes you will be given an assignment that has several questions that
will provide you with direction in developing an essay on this topic.

2 Required Readings
• Topic Notes

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3 Topic Notes

3.1 P ortfol i o Ma na geme nt

Portfolio management is the application of knowledge, skills, tools and techniques to a

collection of projects to meet the organization’s strategic investment. Portfolios are made up of
a collection of projects such as innovative projects where a company may want to invest in new
products and services, or key operational projects to upgrade the environment to pave the way
for new initiatives, or, in the case of government a program or portfolio would be a collection
of projects under one umbrella.

While project management itself focuses on “doing projects right”, portfolio management
focuses on “doing the right projects”. Many organizations existing portfolios suffer from;
 too many projects and not enough resources available to complete them
 ineffective project prioritization
 projects cancelled without solid information
 too many minor projects in the portfolio

The end result of this in most cases is poor performance! Projects take too long to get to
market with higher than acceptable failure rates.
The purpose of portfolio management is to provide a mechanism or tool to choose the right
projects for the organization to provide maximum return on investments. In the simplest
terms portfolio management involves establishing a continual and integrated process within
an organization to choose and execute new projects to focus on those that bring the highest
value to the organization with the least amount of risk.

Michael S. Dobson in “The Juggler’s Guide to Managing Multiple Projects” has defined
three types of project portfolios:
 Task Oriented Project Portfolio – small in amount of work and time, person
managing these usually has a full time job and is “juggling” multiple small projects
 Independent Project Portfolio – projects not directly connected to one another, if
one fails or succeeds it does not directly affect the other projects in the portfolio
 Interdependent Project Portfolio – the most challenging and the one that we will
focus on, projects are connected to each other and the success of the entire portfolio
depends on the success of all projects under that umbrella.

In large organizations you will often find multiple interdependent portfolios. The challenge
this creates is enormous. Resources for the projects are cross organizational and all projects
and portfolios are normally competing for the same resources. This creates a nightmare in
terms of managing the most critical asset within an organization “resources”. For the most
part organizations decide to implement portfolio management to assist them to gain control of
this critical resource and understand from an organizational perspective where resources

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are under or over allocated. Once a cross organization view is obtained relating to resources
then key decisions can be made to more effectively manage the internal resources and to
provide supporting outsourced resources where it is most appropriate.
Implementing a portfolio management process is one solution to the issues identified. In
order to effectively manage portfolios, it is necessary to define and implement a systematic
process for selecting which projects to do in the organization, how to integrate new projects
into the process during the course of the year, and how to effectively manage the projects in
progress by the use of a firm gating or go/no go process. Resource capacity analysis is
another extremely important feature of any portfolio management process that must be
included to reap the most rewards.

To begin the process of establishing portfolios the organization must define the projects that
are managed in the organization. The first step is to identify the types of projects managed in
the organization, and second categorize these projects to determine relative size, complexity,
and the relation of the projects back to the strategic plan in the organization. The following is
an example of how an organization might define the types of projects managed to form
“portfolio buckets”:
Diagram used with permission Enterprise Project Management Ltd.

Strategic: Market Focused Innovative: Change Focused

~ Essential to current business ~ New products or services to
strategy and provides a support business strategy
competitive edge.

Operational: Performance Focused Support: Cost Focused

~ Improves core business for the ~ Improves

long term and avoids business productivity/efficiency and
risks and increases performance saves money or reduces
costs

The second step to establishing portfolio management is to categorize projects to determine,

size, complexity and relation to the organization’s strategic plan. The following diagram is an
example of how an organization might categories projects:

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 Criteria Category 1 Category 2 Category 3

1. Project types ~ Support projects

~ Strategic ~ Operational
~ Operational ~ Innovative
2. Average # of >50 – 100 person- >10 – 50 person-months 2–10 person-months
Team members months
3. Project cost > $2 million $500,000 – $1 million < $500,000
4. Planning High, Cross functional team Medium to low,
Very high
complexity functional
Cross functional team,
specialised expertise
5. Risk Significant High Medium to low
6. Stakeholder Multiple external and Multiple customers and Internal customers,
Environment internal stakeholders multiple sites some external
multiple locations customers
7. Solution Integration, global, Integration, multiple No integration, local
complexity very high locations

Once an organization has defined the project types, these can become portfolios, and once the
categories of projects are established and agreed to, the processes can be put in place to
develop a portfolio management process for the organization.

Portfolio management focuses on doing the right projects. The challenge is in keeping the
portfolios manageable. To do this an organization must focus on another process, which is
comparing projects within and across portfolios to ensure that the “right projects” are
completed that provide the best return on the strategic investment. The following diagram
shows one process that can be adapted within an organization to compare projects against
each other within and across portfolios.

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Balancing portfolios is a challenge even if the processes have been put in place to identify,
classify, select, make go/no go decisions and rank projects. Often the component that is not
factored in to decisions is the resource balancing. In fact, organizations that fail at
implementing a portfolio management process are those that do not factor in resource
implications with their project evaluation process! The resource commitment must be
aligned with the portfolio processes and strategy. The resource “stretch” is often a result of
failure in selected tools to manage resources across portfolios and reluctance by executive
and management to say “no” to some projects even if they appear to be worthwhile.
The results of too many projects can be serious, some of the negative effects are:
 Time to market suffers as projects end up waiting for resources to become available
 People are spread thinly across projects and start to cut corners and push to complete
tasks, tasks fall through the cracks or are purposefully left out in the interest of saving
time
 Quality of execution suffers
 Quality of information is deficient and decisions can be made based on less than solid
information
 Stress increases, morale goes down

All of these factors contribute to higher failure rates and the inability to achieve the full
potential for the organization.

When implementing portfolio management in an organization, there are many factors to

consider. I have briefly described some of them in this topic notes. Any Portfolio
management system must include:
 Identification of the types and categories of projects within the organization
 Process development:
{including decision points in the process – gates/go/no decisions
{project selection process
 Resource management
 Strategic fit of projects to the organization
 Tools to support the process

No matter how sophisticated or elegant a portfolio management process is if the information

input is poor the decision making will be impacted!

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